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HMRC publishes new Spotlight 32

HMRC "spotlights" represent its list of targeted tax avoidance schemes and taxpayers and employers alike should be aware of whether any plan they operate has been spotlighted by HMRC and is therefore subject to a high risk of challenge.

The latest is part of HMRC's focus on "managed service companies" or MSCs and follows the tribunal decision in Christianuyi Ltd & Ors v Revenue and Customs [2016] UKFTT 272 (TC) (21 April 2016) in which HMRC argued that the MSC legislation (contained in Part 2 of the Income Tax (Earnings & Pensions) Act 2003) applied to arrangements established and run by a third party. The implication (as a by-product) is that certain payments made under managed service company arrangements should be subject to PAYE and NIC. Leave to appeal has been granted.

In the meantime, HMRC state:

"Where a company is set up to provide a worker’s services to an engager and the MSC legislation applies, amounts paid to an MSC for those services that are not already subject to PAYE income tax and Class 1 NICs (for example, share dividends), are treated as employment income.

HMRC’s firm view, now supported by the tribunal decision, has always been that these types of arrangements do not work. HMRC continues to open enquiries into users of similar arrangements that include the provision of workers in many different industry sectors, including road haulage, health, care and education. HMRC will investigate and challenge these arrangements via every route open to it, including litigation, and seek full settlement of the tax due, plus interest and penalties, where appropriate."

Anyone providing workers services through an entity to which the MSC legislation applies should consider carefully how payments are made and whether PAYE and NIC should apply.

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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